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Thursday, June 18, 2015

Alex Gourlay Shakes Off Walgreens' Old Strategy and Hints at PBM Plans

Crain’s Chicago Business has just published The Plan to Save Walgreens, a fascinating interview with Alex Gourlay, the former Alliance Boots executive who is now president of Walgreens. Kudos to Brigid Sweeney for another insightful article about Walgreens.

In the article, Gourlay concedes that Walgreens faces challenges, outlines his strategic priorities, and hints at the company’s plans to acquire or partner with a pharmacy benefit manager (PBM).

Gourlay seems upbeat, as if he has music in his mind saying it's gonna be alright.

Highlights and my PBM acquisition speculations below, along with comments on what this week’s CVS-Target deal might mean for Walgreens.THIS SICK BEAT

Since the April analyst day, Gourlay, the fella over there with the hella good hair, has been talking more specifically about Walgreens’ next steps. Here’s a highlight from the Crain’s article:

”He's streamlining employee ranks, making cuts that affect senior staff in Deerfield down to district and store managers. He's updating supply chain technology and using data culled from Walgreens' Balance Rewards program to purchase inventory more efficiently, rather than leaving buying decisions to the whims of individual store management.”

The article quotes me as follows:

”Walgreens needs to be a leaner and more nimble company…Being efficient is going to be a key success factor for pharmacy in the future.”

Gourlay, meanwhile, opened the door to unprecedented outsourcing.

”He's considering partnerships to take over its in-store clinics and strengthen its pharmacy sales.”

This would continue the trend that began in 2013, when AmerisourceBergen took over the distribution of all brand-name drugs that had been distributed from Walgreens’ own warehouse network or from other wholesalers. In 2014, ABC assumed responsibility for generic products that Walgreens had historically self-distributed. See Section 6.5.3. of our 2014-15 Economic Report on Retail, Mail, and Specialty Pharmacies.

The clinic move is badly needed for Walgreens’ underutilized Take Care acquisition. Walgreens is now the second-largest operator of retail clinics, with more than 400 Healthcare Clinics (formerly called Take Care clinics). Before 2014, Walgreens had been decreasing its clinic numbers—a big difference from CVS Health’s aggressive growth strategy.

THAT'S WHAT PEOPLE SAY

During its analyst day, Gourlay and Jeff Berkowitz (president of Pharma and Global Market Access) both emphasized the importance of payer relationships. Given the speculation about Walgreens Boots Alliance’s (WBA) acquisition plans, this statement from the Crain's article caught my eye:

”…Gourlay says he is open to either acquiring or forming a partnership with a PBM.”

Hmmm.

Most Wall Street analysts expect a partnership with Express Scripts or UnitedHealth Group’s OptumRx PBM. Though a partnership is the obvious next step, it’s also fun to speculate on whom WBA could buy. Many speculate that it could be Express Scripts, but I’m skeptical about M&A with the PBM’s current management team.

”CVS is taking advantage of Walgreen’s position right now. CVS is expanding to while Walgreen is retrenching and restructuring,” says Adam Fein of Pembroke Consulting, who tracks pharmaceutical distribution. “The two largest chain drug stores are going in opposite directions.”

He notes that Walgreen is trying to cut $1.5 billion from its retail business, including plans to close 200 stores. Meanwhile, Walgreen is emphasizing beauty products, centralizing purchasing and eliminating layers of management. Fein thinks the CVS deal will pressure Walgreen to make a similar move.

“I think it opens up the possibility of a Walgreen and Wal-Mart partnership,” he says. “Wal-Mart is four to five times large in prescription drug revenue compared to Target. But Wal-Mart can’t outsource the business to anyone but Walgreen because no one else can take on that much business.”

Some readers may not believe that the new management team can turn around Walgreens or make such dramatic moves. The haters are gonna hate, so Gourlay and his team will just have to shake, shake, shake, shake it off.

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